MAIN FINANCIAL PRODUCTS AVAILABLE IN MALAYSIA

I extracted the information from BNM (hope, it is beneficial to strengthen our understanding )

Bai Al Inah (sell and buy back) is a contract which involves selling and buying of an asset where a seller will sell the asset to a buyer on a cash basis and subsequently will buy the same asset on a deferred payment basis at mark up price. It can also be applied when a seller sells the asset to a buyer on a deferred basis and will later buy back the same asset on a cash basis with a price which is lower than the deferred price. This product is not accepted in the Middle East countries.

Ijarah (leasing) refers to a contract under which the lessor leases equipment, building or other facilities to a client at an agreed rental rate and pre-determined lease period upon the aqad (contract). The ownership of the leased equipment remains in the hand of a lessor.

Mudharabah (profit-sharing) is a contract which is made between two parties to finance a business venture. The parties are a capital provider or an investor who solely provides the capital and an entrepreneur who solely manages the project. If the venture is profitable, the profit will be distributed based on a pre-agreed ratio. In the event of business loss, the loss shall be borne solely by a provider of the capital.

Murabaha (cost plus) refers to a contract of a sale and purchase transaction of an asset whereby the cost and profit margin (mark-up) are made known and agreed by all parties involved. The settlement for the purchase can be settled either on a deferred lump sum or installments basis, will be specified in the agreement.

Qardhul Hassan (benevolent loan) is a contract of loan between two parties on the basis of social welfare or to fulfill a short-term financial need of the borrower. The amount of repayment must be equivalent to the amount borrowed. It is however the borrower may choose to pay more than the amount borrowed as long as it is not stated or agreed at the point of contract.

Rahnu (collateralised borrowing) is equivalent to the conventional colleteralised borrowing. It refers to an arrangement whereby a valuable asset is placed as collateral to raise funding. The amount borrowed must be equal with the collateral rendered. The collateral may be transferred to lender in the event of default. To get the principal back the lender will sells the collateral and take the principal amount. Any excessive amount must be returned to the borrower.

Wadiah (savings with guarantee) is a trust concept which refers to the deposits or valuable goods that have been kept with a depository agent. The depository agent will safeguard and provide guarantee to the principle of the deposits or valuable goods. With permission from the depositors, depository agent may invest the deposit to earn some returns. However, the depositors are not entitled to any share of the returns but the depository agent may give a gift (hibah) to the depositors as a token of appreciation.

SOME POINTS TO PONDER - WADIAH VERSUS QARD

When I was studying for my Masters Degree a few years back, I took up a course in Islamic Banking and Finance. My lecturer is a prominent academician and an industry expert in Islamic banking (having served in the Islamic Banking Division of a local bank for nearly 2 decades). Being a person with minimal knowledge in Islamic banking and for my further understanding of the concept of Wadiah, I raised a question on the concept of Wadiah on savings accounts – since Wadiah means safekeeping and the Bank acts as a Trustee for the deposits, they should not invest the depositors’ monies as ownership of the deposits still lies with each individual depositors.

My lecturer gave me an explanation that was not very satisfactory and so I did some research on this very concept and for knowledge purposes, I reproduced a comprehensive (but short) write up on wadiah (courtesy of http://wadiah.com) :

Wadiah or safekeeping is an instrument that allows a person to keep the wealth or assets belonging to oneself with another person for safekeeping purposes. In the legal sense, it signifies a thing entrusted to the care of another. The proprietor of the thing is known as mudi’ (depositor), the person entrusted with it is known as wadi’ or mustawda’ (custodian) and the deposited asset is wadiah. The concept of wadiah is not specifically mentioned in the Holy Quran. However, as far as safekeeping which is closely related to trust is concerned, there are some indications on this concept, which can be observed in the following verses:

· “Those who are faithfully true to their trusts (amanah) and to their covenants” 23:8

· “Verily, Allah commands that you should render back the trusts to those, to whom they are due” 4:58

In the Sunnah, Al-Bayhaqi narrated that ‘A’ishah said on the occasion of the Prophet’s (pbuh) migration to Medina (Hijrah), “The Messenger of Allah asked ‘Ali to take his place in Makkah in order to deliver the deposited things to their owners.” Moreover, the Prophet (pbuh) is reported to have said: “Return the trust to those who entrusted you, and do not betray those who betrayed you.” (Abu Dawood and Tirmidhi).

Therefore, premised on the above, all Muslim jurists unanimously agree on the permissibility of Wadiah.

There are 2 types of wadiah :

· Wadiah Wadiah based on custodianship (wadiah yad al-amanah)

The actual nature of wadiah as started earlier is amanah (custodianship) where it is charitable and divinely rewarded. The custodian shall keep the deposit as if he is keeping and taking care of his own property. As an amanah contract, this type of wadiah does not impose any liability on the custodian in normal cases of loss or damage except in the case of negligence or wrongful doings (fault-based).

· Wadiah with Guarantee (wadiah yad al-Dhamanah)

It is a combination of two contracts which are safekeeping (wadiah) and the guarantee (Damman) contract. Dhamanah contract when attached to the wadiah contract, converts the concept of wadiah to guaranteed safe custody. The custodian is entitled to use the deposited item for trading or other purposes, irrespective of the consent of the depositor as he is guaranteeing the return of the deposit and is liable for any damage or loss. The custodian has a right to any income derived from the utilization of the deposited asset. Since the custodian owns the profit, he may dispose it as he wishes and may give some portions of the profit as a gift (hibah) to the depositor.

The same issue cropped up when I attended my Islamic law of contract class this morning – my lecturer raised the issue that if the Bank wants to invest the deposits made by the depositors, they should use a contract of qard (loan) instead of wadiah. After all, in qard, ownership and risk of loss and returns are transferred to the borrower (in this case, the Bank) and at the same time, the lender (the depositors) are ensured of the return of the deposits. The borrower (i.e., the Bank) has a legal duty to repay to the lender the money that they borrow (the actual deposit), and therefore, the interest of the depositors are safeguarded at all times.

This makes me think that if Islam has made it easy for the Bank to use the contract of qard (for money lending) why do we need another concept of Wadiah yad al-Dhamanah for our savings or even current accounts???

My next question is – is Malaysia the only country that opts to use of Wadiah yad al-Dhamanah concept for our savings and current account?

What if a depositor does not wish his savings to be used for investment purposes? Will he not be entertained by the Bank? As it is right now, when a person opens an account with a Bank, we are to sign opening of account agreement(s) that is/are unilateral in nature – is this just? Or is it only beneficial to one party? What happens to mutual consent of terms and conditions in the agreement?

Hhhhmmmm, too many unanswered questions here – I leave you to ponder ……